Still Samís Walmart

BENTONVILLE, Ark. – Walmart executives celebrated the retailer’s improving performance as well as its 50th anniversary during the company’s annual meeting here earlier this month.

The festive mood was shadowed, however, by a corruption probe that prompted two major proxy advisory firms to recommend that shareholders vote against a number of board nominees.

Executives highlighted improved financial results from the flagship Walmart U.S. division as well as the ongoing strong performance at Sam’s Club and growing profitability at Walmart International. As usual, the meeting included enthusiastic participation by Walmart associates from around the world as well as entertainment by such celebrities as Taylor Swift, Lionel Richie, Celine Dion and Justin Timberlake, to name a few.

During his speech to attendees, president and chief executive officer Mike Duke invoked five “enduring values” that he said have formed the company’s foundation since its beginning 50 years ago. "The values that built Walmart, defined Walmart and sustained Walmart for the past 50 years will drive our success and make us proud for the next 50 years," he said.

Those values he defined as integrity; opportunity; family and community; purpose; and responsibility. In discussing integrity, which he termed the company’s bedrock value, he addressed the allegations of corruption and bribery in Walmart de México that were revealed in a New York Times story earlier this spring.

"We’re working to continually strengthen our compliance efforts around the world," he said. "And I want to personally assure you we’re doing everything we can to get to the bottom of this matter. We will take appropriate action when the investigation is complete."

The Times had alleged that the company covered up evidence of bribery at Walmart de México and that the cover-up was conducted with the knowledge of senior management and certain board members. After the newspaper informed Walmart of its investigation, the company notified the Justice Department that it had launched an internal investigation of possible violations of the Federal Corrupt Practices Act (FCPA).

Last month Walmart announced the creation of a new corruption watchdog position and detailed stronger controls to ensure FCPA compliance. However, the California State Teachers’ Retirement System, the country’s second-largest public pension fund, filed suit against Walmart for failing to properly investigate and disclose the matter and announced it would vote all of its 5.3 million shares against all incumbent board members up for reelection.

Subsequently two influential proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis & Co. weighed in, with ISS recommending that shareholders vote against Duke, former president and CEO Lee Scott, chairman Robson Walton and Christopher Williams, chairman of the board’s audit committee. Glass Lewis recommended no votes on Scott, Duke and Williams as well as Aida Alvarez, Michele Burns, James Cash and Arne Sorenson, all of whom were on the audit committee at the time.

A third proxy advisory firm, Egan Jones, recommended voting against Duke and Scott.
In the final tally of votes, which encompassed almost 92% of all outstanding shares, 15.7% were cast against Scott, 13.3% against Williams and almost 13.1% against Duke. Just over 12.6% were voted against Walton.

Last year stockholders voted an average of about 98.4% of their shares in support of the board members, which was generally in line with prior historical results.

Excluding the approximately 50% of the company’s shares held by members of the Walton family, about 38% of the remaining votes went against Scott, 32% against Duke and Williams, and slightly more than 31% against Walton. While some observers described the opposition as significant, Paul Hodgson, a senior research associate at GMI Ratings, an independent research firm that rates corporate boards, stated in a published report that the percentage of no votes would have had to be more than 40%, excluding Walton family members and other insiders, to prompt action.

Throughout his remarks and in closing, Duke invoked the memory of the company’s founder, Sam Walton. "I believe Sam Walton’s greatest legacy was the foundation he built — the culture, the beliefs and the enduring values," Duke said.

"We can’t possibly envision what the world, what retailing, what Walmart will look like in another 50 years. But if we stay true to the foundation that Sam Walton built, we’ll continue to be a better company, a stronger company and a prouder ­company."